Spousal IRAs complicated, but worth it

NEW YORK (1/29/08)--Calling all marrieds, filing jointly: More generous federal guidelines make it easier than you think to save for retirement (SmartMoney.com Jan. 9).

Be aware of income limits, including a 2008 increase, which are similar to Roth IRA limits (MarketWatch.com Jan. 16). And it doesn't matter whether one or both spouses work--chances are pretty good you can find a scenario below that applies to you so you can bump up savings with deductible individual retirement account (IRA) contributions:

One spouse doesn't work, and neither spouse participates in a qualified retirement plan. Both spouses can make deductible contributions of up to $5,000 ($6,000 if age 50 or older) to traditional IRAs, regardless of adjusted gross income (AGI).

One spouse doesn't work, and the working spouse is covered by a qualified retirement plan. As long as the working spouse has sufficient income to cover the contribution, the nonworking spouse can make a deductible IRA contribution of up to $5,000 for 2008, or $6,000 if age 50 or older as of Dec. 31, 2008. There's a phase-out, though, for couples with AGI between $159,000 and $169,000.

Both spouses work, but neither participates in a qualified retirement plan. In this case, both spouses qualify to make deductible IRA contributions of up to $5,000 ($6,000 if age 50 or older by Dec. 31, 2008) with no cap on AGI. If both contribute the maximum, the couple needs at least $10,000 ($12,000 if both are age 50 or older) of earned income between them.

Both spouses work, and only one participates in a qualified retirement plan. In this case, the spouse who participates can only make deductible IRA contributions for AGI up to $85,000, with phase-out between $85,000 and $105,000. However, in a case where joint income is significantly higher, the nonparticipating spouse has more liberal guidelines, with phase-out between the AGI range of $159,000 and $169,000.

Both spouses work, and both participate in a qualified retirement plan. If the couple's joint AGI is more than $105,000, neither is eligible to make a deductible IRA contribution that year. If joint AGI is $85,000 or less, both can make $5,000 deductible contributions ($10,000 total, or $12,000 if age 50 or older).

Your credit union IRA specialist can help you sort through these variables. For more information, listen to "Using IRAs Effectively Before Age 59 1/2" in Plan It: Retire Ready Toolkit.